Governor Masaaki Shirakawa and his board yesterday rejected
one member’s suggestion to build on the 10 trillion yen ($121
billion) of additional government-bond purchases announced Feb.
14. Officials instead expanded loans designed to boost long-term
growth. Shirakawa told reporters after the meeting that bending
to politicians would be “suicide.”

The unprecedented size of last month’s move proved a
success in diminishing risks for Japan’s exporters, by sending
the yen tumbling further from the postwar high against the
dollar reached in October. At the same time, boosting
government-debt purchases risks fueling concern that the BOJ is
moving closer to financing the nation’s deficit spending,
according to JPMorgan Chase & Co.

“The BOJ is eager to secure its independence from the
government,” said Junko Nishioka, an economist at RBS
Securities Japan Ltd. who has worked for the central bank. After
opting for action outside of the main asset-purchase program
yesterday, the bank may expand that stimulus “in the near
future,” perhaps at a meeting next month, she said.

After the yen rose in the wake of the BOJ’s decision,
Shirakawa’s signal at his press conference that further bond
purchases aren’t off the table sent the currency down. It fell
0.6 percent to 82.76 per dollar as of 6 p.m. in Tokyo yesterday
and touched an 11-month low of 83.21 today after the U.S.
Federal Reserve raised its economic assessment.

‘Political Pressure’

As lawmakers renewed calls for a more aggressive campaign
to end deflation and spur growth in the world’s third-biggest
economy, Shirakawa told reporters that “the Bank of Japan
doesn’t change its monetary policy because it’s mindful of
political pressure.”

Yoichi Kaneko, a lawmaker in the ruling Democratic Party of
Japan, said that yesterday’s move to expand low-interest lending
facilities for industries, including 1 trillion yen of dollar-denominated credit, “has no bearing on economic recovery; I
can’t see the positives in this.”

Shirakawa ordered his staff to outline details for the
dollar loan facility by the board’s next meeting on April 9-10.
While the BOJ says its lending programs to aid growth have been
effective, details of where the money is going are not public.

Long-Term Challenge

“Japan’s economy currently confronts the long-term
structural challenge of declining trend growth rates amid rapid
population aging,” the central bank said in a statement
explaining the extra lending measures to aid growth.

One policy maker, Ryuzo Miyao, had advocated a 5 trillion
yen boost to asset-buying and credit-loan programs that already
total 65 trillion yen. Yesterday’s announcement that he’d lost
the argument pared an advance of as much as 1.2 percent in the
Nikkei 225 Stock Average before the decision. The Nikkei closed
0.1 percent higher.

Masaaki Kanno, chief Japan economist at JPMorgan in Tokyo
and a former BOJ official, said in a report last month that
central bank bond purchases in the absence of fiscal austerity
measures could be seen as paving the way for debt monetization.
He reaffirmed that view in a phone interview yesterday.

Japan’s economy is showing signs of rebounding from a
contraction last quarter. Machinery orders rose a more-than-forecast 3.4 percent in January, a report showed this week, and
industrial production and retail sales also exceeded economists’
median estimates. Toyota Motor Corp., Asia’s largest carmaker,
last month raised its profit forecast.

Expectations for Easing

Yesterday’s policy decision “is a bit disappointing” to
investors anticipating further expansion in liquidity, said
Masamichi Adachi, a fellow economist at JPMorgan. At the same
time, Miyao’s vote in favor of more asset purchases “spurs
expectations that the central bank will take action,” he said.

The decision to leave the asset purchase and credit-loan
programs unchanged was anticipated by 12 of 14 economists
surveyed by Bloomberg News. The benchmark interest rate stayed
at between zero and 0.1 percent. Hiroshi Watanabe, the nation’s
former top currency official, said the BOJ could afford holding
off on additional stimulus after moving in February.

Signal Readiness

“The central bank just needs to signal its readiness to
take action when something happens,” Watanabe, chief executive
officer of the state-run Japan Bank for International
Cooperation, said in an interview yesterday in Tokyo. “It’s
necessary for the bank to show its commitment that it would
respond flexibly to situations.”

Shirakawa is being summoned to the nation’s parliament more
regularly this year to answer lawmakers’ questions -- appearing
11 days as of March 12, nearly half his total number of
appearances last year.

“My understanding is that there will probably be more
easing ahead if the policies don’t produce results,” Katsuyuki
Ishida, a vice cabinet minister who attends monetary policy
meeting as a government representative, said this week.

Prime Minister Yoshihiko Noda’s approval ratings have
halved since he took office in September, according to poll data
from public broadcaster NHK. Noda is struggling to convince
lawmakers to double the sales tax to 10 percent to help contain
the world’s largest public debt burden.

Goldman Sachs Group Inc. and Nomura Securities Co. raised
growth forecasts for Japan this month as capital investment
increases because of reconstruction work after the earthquake
and tsunami last March.

The government has compiled about 20 trillion yen for
rebuilding after last year’s disaster left more than 19,000 dead
or missing. The spending should start to lift the economy this
quarter, said Takahide Kiuchi, chief economist at Nomura
Securities Co. which raised its growth forecast to 2 percent in
the year starting April 1 from a previous 1.8 percent estimate.

The BOJ will hold two board meetings next month, reviewing
its price and economic forecasts at the second gathering. The
policy board is also set for changes, with two members’ terms to
expire.